Handling Debt Collectors & Harassment
If you’re struggling with credit card debt, medical debt, a mortgage foreclosure, late payments on car loans or other kinds of unsecured debt, you may already be on the receiving end of repeated calls and stern warning letters from debt collectors.
Additionally, if you’ve used payday loans or have moved recently, some of your family members may have received calls from collection agencies asking for information about you. While filing for bankruptcy will initiate an automatic stay requiring creditors and banks to halt collection and foreclosure actions against you, debt collectors may continue contacting you until you file for Chapter 7 or Chapter 13.
For these reasons, it’s important to understand when debt collectors step over the line and what you can do about it.
The Fair Debt Collections Practices Act
In 1978, the Fair Debt Collection Practices Act (FDCPA) was added to Title VIII of the Consumer Credit Protection Act under 15 U.S.C. § 1692. Intended to protect consumers from abusive, threatening actions on the part of debt collectors, the FDCPA also provides consumers with a means for resolving disputes with debt collectors and holding debt collectors liable for unfair practices. Under the terms of the FDCPA, debt collectors cannot:
- Use threatening or foul language when communicating with you
- Include your name and address in a publication or published list (for example, a circulated list of “bad debts”)
- Call you outside of the allowed calling times of 8 a.m. to 9 p.m. local time
- Continue calling you at work after you’ve requested that they stop doing so
- Continue calling or writing you after you’ve informed them you have an attorney representing you or that you’ve declared bankruptcy
- Threaten to ruin your credit
- Imply that you’ve committed a crime
- Misrepresent themselves as law enforcement
- Claim they work for a credit bureau
- Mislead you into thinking the forms they’ve sent you are not legal forms when they are
- Claim you will be arrested if you don’t pay your debt
- Claim they will garnish your wages
- Contact you by postcard
However, remember that just because you have requested in writing that they stop contacting you, they are still legally able to pursue you through litigation. If this is the only means by which they can legally get in touch with you, they may speed up this process once you request in writing that they discontinue their collection efforts.
Even though debt collectors are supposed to comply with the Fair Debt Collection Practices Act (FDCPA), intimidation, harassment and outright threats are still used by debt collectors. In many ways, unscrupulous debt collectors rely on an ignorance of the law on the part of consumers: when people don’t know their rights and don’t consult an attorney, ruthless debt collectors control the terms of the game. Debt collectors may repeatedly call a consumer threatening legal action if a debt isn’t paid. They may use demeaning language, threaten to garnish wages, contact other family members, show up at work or use physical violence. Unfortunately, the vast majority of people who endure such violations of the FDCPA don’t contact an attorney or take legal action as a result.
The Impact of the Federal Trade Commission (FTC)
In 2009, due to increasing problems related to debt collection practices, the Federal Trade Commission (FTC) issued a report, “Repairing a Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration.” Prompted by a number of concerns related to how disputes are settled when consumers step forward to report abuses by debt collectors, the Federal Trade Commission held a series of roundtable discussions and gathered input from the public before issuing its report. While the report acknowledged several issues related to the litigation and arbitration process in regard to debt collection disputes, it concluded more information was needed before specific recommendations could be made.
Debt Collection — Problems Identified by the FTC’s Report
The FTC’s report identified five main areas of concern regarding the actions of debt collectors, courts and banks:
- Debt collectors failing to notify consumers of suits they’ve filed against the consumer
- Debt collectors suing consumers without sufficient evidence that the consumer owes them money
- Debt collectors attempting to collect debts after the statute of limitations on the debt has run out
- Courts automatically issuing default judgments against consumers when they do not appear in court to dispute the claim against them
- Banks freezing bank accounts that are not subject to garnishment actions on the part of debt collectors
Suggestions to Protect Consumers in Debt Collections
The FTC’s report suggested a number of initiatives to increase protections for consumers and reduce the number of complaints against debt collectors. The Commission encouraged states to adopt measures that will decrease the number of default judgments against consumers by encouraging them to appear in court. Additionally, the report suggested measures should be adopted that require creditors to include more information about a debt before moving against an alleged debtor. This will hopefully decrease the number of cases in which debt collectors sue a debtor in court. Lastly, laws should be introduced at the state and federal level to protect consumers from having funds that are exempt from being frozen or held by their bank.
Debt Collection — Giving Consumers Their Due
A central concern of the FTC is the arbitration and litigation process involving debt collectors and consumers. Several areas were identified by the FTC’s report for improving consumer participation in arbitration and offering measures that should be undertaken to prevent leveraging an unfair advantage on the part of debt collectors. While improvements to the system are an evolving process, the FTC believes improvements will ensure credit prices are kept low and consumer credit widely available.
Is Bankruptcy a Solution?
Filing of the bankruptcy petition serves as an automatic order to all creditors to stop all collection activity. If your creditors are calling day and night, you may want to consider bankruptcy.
Creditors almost never act to collect a debt that has already been discharged in bankruptcy. If they do, they are in big trouble.
The Discharge Order
In both Chapter 7 and 13 versions of bankruptcy, near the end of a successful case you will almost certainly receive a discharge of your debts. The bankruptcy judge signs a formal court order declaring that your debts are discharged. This court order prohibits your creditors from taking any action whatsoever to collect on the discharged debt.
But just because something is illegal doesn’t mean that creditors will obey the law. In fact, as an almost unbelievable example of this, a few years ago Capital One Bank admitted to trying to collect on about 15,500 debts, totaling more than $24 million of debt, that had been discharged earlier in bankruptcy.
The Bankruptcy Code creates an open-ended power for judges to “tak[e] any action or mak[e] any determination necessary or appropriate to enforce or implement court orders or rules. . . .” A creditor’s violation of the discharge order can result in the bankruptcy court holding the creditor in contempt of court, likely leading to punishment of the creditor. The extent of punishment will depend on whether the creditor’s collection efforts intentionally violated the discharge order, did so recklessly, or negligently; on how aggressively it acted; and on what damages it caused. It usually must pay compensatory damages—to correct for any damages it caused, including the debtor’s attorney fees for fixing the problem—and may have to pay punitive damages to teach the creditor a lesson not to violate discharge orders.
When a Creditor is Unaware You’ve Filed for Bankruptcy
All of the creditors listed in your petition for bankruptcy should have been notified formally once your Chapter 7 or 13 bankruptcy has been filed. There is a chance, however, that any messages you have received may have been initiated before the creditor was aware of the filing. Also, you may have a credit card from a company with a corporate office in a different state – if the bank branch that issued the card is in Texas, that out-of-state office may not yet have received notification.
If the reason these creditors are contacting you is simply because they’re not aware that you’ve filed for bankruptcy, then you will probably want to take it upon yourself to notify them on your own. For example, you could send them a copy of your notice of bankruptcy or the Discharge Order. This is usually enough to stop them from contacting you.
When a Creditor Knows You’ve Filed but Continues to Bother You Anyway
Typically, creditors will choose not to waste their time trying to collect if they know you’ve filed for bankruptcy. However, there are times when the creditor is fully aware that you’ve filed and decides to continue to harass you anyway. If this is the case, record the time and date of each call that you receive and tell your attorney. Gather more information as well, if possible – get the phone number they’re calling from, their name and anything else you can get. This could be a big help if you are considering taking any sort of legal action.
Creditors know how the law works, and the penalties that can occur as a result of their harassment. The ones that continue to bother people in bankruptcy may simply be trying to intimidate you, thinking you won’t fight back. But with some persistence and the help of an attorney, you may be able to teach them an expensive lesson.
Collection Lawsuits and Judgment-Proof Debtors
When you hear about collection lawsuits, sometimes you will see the term “judgment-proof” relating to the person owing money. The debtor (the one who owes a creditor) is labeled as “judgment-proof” when it is very hard to collect any money from them because they either hide money or do not have any assets. Creditors try very hard not to offer credit to those with bad credit histories, low income, or problems with employment. Even so, sometimes debtors go through a period where they are essentially judgment-proof.
When Is Someone Judgment-Proof?
Someone is considered judgment-proof when they do not have any assessable assets such as property or money in bank accounts. Many judgment-proof debtors are unemployed, which precludes a creditor from being able to garnish a paycheck or collect from a tax refund. Some types of income are exempt from being garnished such as government assistance. If you believe your income is exempt, make sure to talk to your attorney.
Changing Financial Situation
If you are currently considered judgment proof, your creditors won’t always give up so easily. If your financial situation changes due to employment or other non-exempt income coming in, your creditors may still try to collect on the judgment. You should talk with an experienced attorney right away for advice on how to handle your particular situation.
Going after a Debtor – Questionable Tactics, Intimidation, Exploitation
When a person receives a summons from a collection law firm, it’s not uncommon for him or her to be confused. In order to resolve the issue, the debtor may call the law firm only to be told it’s not a real summons they were sent – it was only intended to get their attention. The law firm then suggests a series of monthly payments to resolve the debt in question. In other instances, the collection law firm may send out a Notice of Service before it’s filed the appropriate papers with the court in order to ensure the alleged debtor does not have sufficient time to respond with a Validation Letter, disputing the debt involved.
Here, the practical result is the same: people are caught off-guard, unfamiliar with the legal process and the rights and protections available to them. As a result, many simply agree to pay a debt even though the collection law firm doesn’t actually have sufficient information to validate the debt and collect on it.
Debt Collection Scams
The debt collection industry has grown exponentially since the late 1990s. This is due in part to the explosion of consumer debt that resulted from the savings and loan scandal, low interest rates, and the subprime mortgage debacle. As a result, creditors began selling their debt to debt collection companies, since creditors themselves did not necessarily have the time or resources to pursue every delinquent account or outstanding debt on their books. Even though selling debt to debt collectors meant losing money, creditors could at least recover some of what was owed them rather than spending untold millions in tracking down debtors, negotiating the Fair Debt Collections Practice Act, or risking a debtor filing for bankruptcy before the creditor was able to collect anything.
Debt Collection — Buying Debt from Creditors
To reiterate, debt collection companies buy debt from creditors. A debt collection company may pay pennies on the dollar for a debt owed a creditor. Then the debt collection company will try to recover as much of the original debt as possible. However, some debt collection companies resort to unethical — if not illegal — methods to intimidate, cajole, or convince debtors to pay what is owed. Some of the methods used involve:
- Threats of violence against a debtor if the debt is not paid
- Calling relatives of a debtor to gather information on the debtor
- Threats of taking legal action if the debt is not paid
- Threats that the collection agency will ruin the debtor’s credit unless the debt is paid
- Harassment involving repeated calls at home or work
In some cases, debt collection companies have been known to encourage debtors to pay a portion of what they owe in order to stop or ease repeated calls and pressure to pay. When a check is mailed, the debt collection company then uses the bank routing and checking account numbers to withdraw what is owed from the person’s account.
Automated Debt Collection
Using computer software programs like Collection-Master, a collection law firm will in turn send out letters and summonses and ultimately sue or settle with a debtor to collect on the amount owed. However, in many cases, information on the debt is incomplete, inaccurate, or simply wrong.
If you fail to appear in court, you may find that your bank account has been depleted by the collection law firm that sent you the summons. When you fail to appear in court on a summons, the judge may find in favor of the debt collector, allowing them to recover the debt through wage or property garnishment. In fact, lawsuits against collection law firms are on the rise precisely because so many of them engage in practices that are meant to exploit a person’s ignorance of the law and legal procedure.
When a person doesn’t hear anything back from the collection law firm, they may assume the matter is resolved, only to find that their bank account has been emptied of the amount they allegedly owe on a debt in question.
A creditor will sometimes go after your tangible assets like your vehicle, jewelry, artwork or any other valuable property to help pay a judgment against you. This can be tough to do. For a creditor to take your property, it will need to file a “writ of execution” from the court, requesting to take control of certain types of property. This can take a lot of time and money and is most often not fruitful. Writ of execution is rarely performed.
What You Need to Know if a Debt Collection Company Calls
Again, debt collectors must comply with the Fair Debt Collections Practice Act (FDCPA). Practically speaking, this means debt collectors are not supposed to repeatedly call you, threaten you in any way, misrepresent themselves as law enforcement officers, or contact you outside of certain prescribed hours.
If a family member is in debt, a debt collector is not supposed to continue to call you after you tell them to stop calling, nor can they hold you legally liable for the debt if your name is not associated with the account or loan in question.
Debt Collectors Trying to Collect on Debts Not Owed?
When debt is sold to debt collectors, information on a consumer’s debt may be incomplete, out of date or simply wrong. As a result, people who have had debts discharged through bankruptcy or resolved through some other means have been hounded by debt collectors.
In other cases, a debt collector may use a law firm to sue a consumer for an alleged debt. When a consumer receives a summons, it may initially cause confusion, prompting a call to the law firm in question. The consumer may be reassured that everything can be resolved if they simply agree to repay the debt. Unaware of what a summons and hearing involve, the consumer may decide and do nothing more about it. Later, however, after he has failed to appear in court, the consumer learns that a summary judgment has been issued against him allowing the law firm to garnish wages or withdraw funds from his bank account.